{"id":287083,"date":"2016-04-04T10:45:47","date_gmt":"2016-04-04T15:45:47","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/estate\/trusts\/setting-up-a-trust.html"},"modified":"2025-07-25T12:35:00","modified_gmt":"2025-07-25T17:35:00","slug":"setting-up-a-trust","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/estate\/trusts\/setting-up-a-trust.html","title":{"rendered":"Setting Up a Trust"},"content":{"rendered":"\n
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Setting Up a Trust<\/h1>\n\n
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\n By Olivia Wathne, J.D.<\/a> | Legally reviewed by Aisha Success, Esq.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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Key Takeaways<\/h2>\n

Setting up a trust involves one party, the grantor, to transfer assets to a trustee to manage on behalf of beneficiaries. Trusts can manage and protect assets, avoid probate court, protect beneficiaries, preserve privacy, and reduce tax liability.<\/p>\n\n <\/div>\n <\/div>\n<\/div>\n\n\n

Most people have heard of trust funds, though few understand how they work. A trust is a versatile legal tool that can serve as a key part of\u00a0your estate plan<\/a>. Whether you want to manage your personal finances better or ensure that your loved ones are well cared for in years to come, a trust can help.<\/p>\n

This article answers some basic questions you may have about setting up a trust.<\/p>\n

What Law Governs Trusts?<\/h2>\n

Trusts have a very long history. There are many\u00a0different types of trusts<\/a>, each designed to solve a unique problem. Most laws that govern trusts are state laws. A local\u00a0estate planning<\/a>\u00a0or\u00a0trust<\/a>\u00a0attorney can ensure that the terms of the trust documents are compliant with state laws. Depending on your financial situation and goals, you may also encounter some important federal regulations, such as the\u00a0federal estate tax exemption<\/a>.<\/p>\n

Although trust laws vary from state to state, some consistency has been achieved through the\u00a0Uniform Trust Code<\/a>. This is a model code designed to standardize trust laws throughout the country. Over half of the states have adopted some version of this code.<\/p>\n

Basic Principles: What Is a Trust?<\/h2>\n

All trusts share some basic features.<\/p>\n

The Cast of Characters<\/h3>\n

All trusts feature a basic relationship between three recurring characters: the\u00a0grantor<\/a>\u00a0(sometimes known as the trustor or settlor), the\u00a0trustee<\/a>, or co-trustees, and the\u00a0beneficiaries of the trust<\/a>. All trusts transfer assets from the grantor to a trustee for the benefit of\u2014you guessed it\u2014a beneficiary.\u00a0<\/i>The grantor creates the trust, the trustee manages the assets in the name of the trust, and the beneficiary reaps the rewards. These roles can overlap depending on the kind of trust involved.<\/p>\n

The Trust Agreement<\/h3>\n

Trusts are created by the grantor in a document known as a\u00a0trust agreement.\u00a0This legal document states the trust’s purpose, names trustees and beneficiaries, identifies and transfers assets into the trust, and prescribes any special rules. It may also name successor trustees if the primary trustee cannot or chooses not to fulfill their duties.<\/p>\n

The Trustee’s Fiduciary Duty<\/h3>\n

A trustee can be an individual, a board, or an institution (e.g., a trust company or brokerage that specializes in managing trusts). Technically, the trustee actually owns the trust assets, but they do so as a\u00a0fiduciary<\/a>\u00a0of the trust beneficiaries. This means that the trustee is legally obligated to manage the assets responsibly and productively for the benefit of the beneficiaries. A\u00a0breach of fiduciary duty<\/a>\u00a0can lead to serious legal consequences.<\/p>\n

Trustees may be entitled to compensation for their services. Depending on the trust terms, payment may or may not come from the trust income.<\/p>\n

Changing the Trust Agreement: Revocable vs. Irrevocable Trusts<\/h3>\n

There are two broad categories of trusts: revocable and irrevocable. In a revocable trust, the grantor reserves the power to\u00a0revoke or change the trust agreement<\/a>. In an irrevocable trust, changes are not allowed without the beneficiary’s consent. Each category has advantages and disadvantages depending on the grantor’s underlying goals.<\/p>\n

Living vs. Testamentary Trusts<\/h3>\n

Trusts that take effect during the grantor’s life are known as\u00a0living trusts<\/a>\u00a0(inter vivos\u00a0trusts). These are best understood in contrast to\u00a0testamentary trusts<\/a>, so named because they are created in the grantor’s last will and testament. Whereas living trusts take immediate effect once formed, a testamentary trust takes effect upon the grantor’s death.<\/p>\n

What Is the Purpose of a Trust?<\/h2>\n

Trusts can achieve many goals that often overlap. Some common goals include:<\/p>\n